Northrop Grumman 2013 Annual Report Download - page 40

NORTHROP GRUMMAN CORPORATION
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plans. The net FAS/CAS pension adjustment is pension expense determined in accordance with GAAP less pension
expense charged to contracts and included in segment operating income. The increase in net FAS/CAS pension
adjustment during 2013 reflects an update for actual demographic experience as of January 1, 2013, which resulted
in an increase to the company's 2013 CAS pension expense.
Unallocated corporate expenses generally include the portion of corporate expenses, other than FAS pension costs,
not considered allowable or allocable under applicable CAS and FAR rules, and therefore not allocated to the
segments, such as a portion of management and administration, legal, environmental, certain compensation and
retiree benefits, and other expenses. The decrease in unallocated corporate expenses for 2013, as compared to 2012,
is primarily due to lower year-over-year provisions for disallowed costs and litigation matters and the favorable
settlement of overhead claims, partially offset by changes in deferred tax assets due to lower blended state income
tax rates.
AEROSPACE SYSTEMS
Year Ended December 31
$ in millions 2013 2012 2011
Sales $10,014 $9,977 $9,964
Operating income 1,215 1,218 1,217
Operating margin rate 12.1% 12.2% 12.2%
2013 - Aerospace Systems sales for 2013 were slightly higher than 2012, due to higher volume on manned military
aircraft programs, offset by lower volume on unmanned and space programs. The increase in manned military
aircraft programs reflects higher sales of $107 million from increased deliveries on the F-35 program, as well as
higher volume on the B-2 and E-2D Advanced Hawkeye programs, partially offset by lower volume on various
other programs. The decrease for unmanned programs reflects lower sales of $295 million on the Global Hawk
program largely due to ramp-down on sustainment, support and logistics contracts, partially offset by higher sales of
$187 million on the NATO Alliance Ground Surveillance (AGS) program resulting from ramp-up activities. The
decrease in space programs reflects lower volume for restricted programs due to ramp-down activities, and higher
volume on the James Webb Space Telescope (JWST) and Advanced Extremely High Frequency (AEHF) programs.
Operating income and operating margin rate for 2013 were comparable to 2012. Operating income and operating
margin rate also reflect the impact of a forward loss recognized on a restricted program, which was offset by the
continuing effect of higher contract margin rates across the segment principally related to prior net favorable
adjustments.
2012 - Aerospace Systems sales for 2012 were comparable to 2011. Sales of unmanned systems increased
approximately $280 million, primarily related to ramping up on the NATO AGS and Fire Scout programs.
Additionally, there was higher volume of approximately $200 million on the F-35 program due to deliveries on
LRIP 5, the first F-35 contract accounted for under the units-of-delivery method. These increases were offset by the
termination of a weather satellite program, which reduced sales by approximately $175 million, as well as lower
sales on the Joint Surveillance Target Attack Radar System (JSTARS), F/A-18 and certain restricted space programs.
Operating income and operating margin rate for 2012 were comparable to 2011. The operating income and operating
margin rate reflect approximately $90 million lower operating income from the F/A-18 program's lower volume and
transition from the multi-year 2 contract to the lower margin multi-year 3 contract, principally offset by performance
improvements in space systems and higher operating margin rates and volume on sales of unmanned systems.
ELECTRONIC SYSTEMS
Year Ended December 31
$ in millions 2013 2012 2011
Sales $7,149 $6,950 $7,372
Operating income 1,226 1,187 1,070
Operating margin rate 17.1% 17.1% 14.5%
2013 - Electronic Systems sales for 2013 increased $199 million, or 3 percent, as compared with 2012. The increase
was due to higher sales on international programs of $244 million and space programs, partially offset by lower